Correlation Between BMO Aggregate and BMO MSCI
Can any of the company-specific risk be diversified away by investing in both BMO Aggregate and BMO MSCI at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining BMO Aggregate and BMO MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Aggregate Bond and BMO MSCI USA, you can compare the effects of market volatilities on BMO Aggregate and BMO MSCI and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in BMO Aggregate with a short position of BMO MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Aggregate and BMO MSCI.
Diversification Opportunities for BMO Aggregate and BMO MSCI
-0.33 | Correlation Coefficient |
Very good diversification
The 3 months correlation between BMO and BMO is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and BMO MSCI USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO MSCI USA and BMO Aggregate is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on BMO Aggregate Bond are associated (or correlated) with BMO MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO MSCI USA has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and BMO MSCI go up and down completely randomly.
Pair Corralation between BMO Aggregate and BMO MSCI
Assuming the 90 days trading horizon BMO Aggregate is expected to generate 4.74 times less return on investment than BMO MSCI. But when comparing it to its historical volatility, BMO Aggregate Bond is 1.84 times less risky than BMO MSCI. It trades about 0.06 of its potential returns per unit of risk. BMO MSCI USA is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 5,813 in BMO MSCI USA on August 31, 2024 and sell it today you would earn a total of 3,131 from holding BMO MSCI USA or generate 53.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Aggregate Bond vs. BMO MSCI USA
Performance |
| Timeline |
| BMO Aggregate Bond |
| BMO MSCI USA |
BMO Aggregate and BMO MSCI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Aggregate and BMO MSCI
The main advantage of trading using opposite BMO Aggregate and BMO MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Aggregate position performs unexpectedly, BMO MSCI can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in BMO MSCI will offset losses from the drop in BMO MSCI's long position.| BMO Aggregate vs. iShares Core MSCI | BMO Aggregate vs. Vanguard FTSE Canada | BMO Aggregate vs. Vanguard Canadian Aggregate | BMO Aggregate vs. iShares Core MSCI |
| BMO MSCI vs. BMO SP 500 | BMO MSCI vs. Vanguard SP 500 | BMO MSCI vs. Global X SP | BMO MSCI vs. iShares Core SP |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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